Payments mlp the pv of the minimum lease payments mlp

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: um lease payments (MLP) is 90% or more of the fair value of the asset. 90% of 15-7 Slide 8 Classification Criteria A bargain purchase option (BPO) gives the lessee the bargain right to purchase the leased asset at a price significantly lower than the expected fair value of the property and the exercise of the option appears reasonably assured. exercise The lease term is normally considered to be the nonThe lease cancelable term of the lease plus any periods covered by cancelable bargain renewal options. If the inception of the lease bargain If occurs during the last 25% of an asset’s economic life, this criterion does not apply. this For the lessee, a capital lease is treated as the purchase For of an asset – the lessee records both an asset and liability at inception of the lease. liability 15-8 Slide 9 Additional Lessor Conditions The four conditions discussed apply to both the lessee and lessor. However, the lessor must meet two additional conditions for the lease to be classified as either a direct financing or sales-type lease: 1. The collectibility of the lease payments must be reasonably predictable. 2. If any costs to the lessor have yet to be incurred, they are reasonably predictable. (Performance by the lessor is substantially complete.) Lessor = Owner of the property subject to the lease. 15-9 Slide 10 Operating Leases Lease Lease agreement agreement exists. exists. Record lease as Record lease as an Operating an Operating Lease. Lease. Criteria for a Criteria for a capital lease capital lease not met. not met. Capital Lease 15-10 Slide 11 Operating Leases - Example On January 1, 2011, Sans Serif Publishers, Inc., a computer services On January 1, 2011, Sans Serif Publishers, Inc., a computer services and printing firm, leased a color copier from CompuDec Corporation. and printing firm, leased a color copier from CompuDec Corporation. The lease agreement specifies four annual payments of $100,000 The lease agreement specifies four annual payments of $100,000 beginning January 1, 2011, the inception of the lease, and at each beginning January 1, 2011, the inception of the lease, and at each January 1 thereafter through 2014.The useful life of the copier is January 1...
View Full Document

Ask a homework question - tutors are online